Randall N. Fairey v. Minister of National Revenue, [1987] 2 CTC 2204, 87 DTC 534

Bonner, T.C.J.:— This appellant appeals from an assessment of income tax for the 1984 taxation year. The only issue raised by the pleadings is whether amounts deducted at source from the appellant's salary and paid into a pension fund as required by the provisions of certain legislation formed part of the ”. . . salary . . . received by him [the Appellant] .. ." within the meaning of subsection 5(1) of the Income Tax Act. The assessment was not founded on the application of section 6 of that Act. Subsection 5(1) reads as follows:

5. (1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

During 1984 the appellant was employed by the Cancer Control Agency of British Columbia. His salary was $106,089.10. As an employee of the Agency he was subject to the Pension (Municipal) Act, R.S.B.C. 1979, c. 317. Pursuant to subsection 5(1) of that Act the Agency deducted from the appellant's salary the sum of $7,562.11 and forwarded it to the commissioner for payment into the Municipal Superannuation Fund established under the Act.

Subsection 5(1) of the Pension (Municipal) Act reads in part as follows:

5. (1) From the salary payable to each employee to whom this Act applies, his employer shall deduct monthly a minimum amount equal to the sum of

(a) 5% of the amount of that part of the employee's salary, payable during that month, that does not exceed /12 of the year's maximum pensionable earnings;

(b) 6 /2% of the amount of the employee's salary, payable during that month,

which is in excess of '/12 of the year's maximum pensionable earnings; and

(b.1) 1% of the employee's salary;

and the employer shall forward the amount deducted under this subsection to the commissioner, who shall pay it into the fund; and for this section the amount shall be determined as follows: . . .

In assessing tax the respondent proceeded on the basis that the entire $7,562.11 formed part of the appellant's income for the taxation year. He based this conclusion on the assumption that the appellant’s employer, in deducting and remitting that amount, was “acting with express or implied authority as agent or trustee of the Appellant”. Although the appellant had not sought any deduction under paragraph 8(1)(m) of the Income Tax Act, the respondent allowed the maximum deduction under that provision, 3,500.

Counsel for the appellant argued that:

(a) subsection 5(1) of the Income Tax Act clearly means that income from employment is not taxable until received by the employee;

(b) the amount in question was not in fact delivered to the appellant, was not available to him to spend and was not at his disposal;

(c) the respondent cannot rely on principles of trust or agency because the amount in question could not be viewed, either in fact or in law, as having become the property of the appellant and subject to some sort of direction given by the appellant to his employer to deal with it in any particular way;

(d) there is no applicable statutory provision which deems the amount in question to have been received by the appellant; and

(e) the obligation to make contributions under subsection 5(1) of the Pension (Municipal) Act is the obligation of the appellant's employer, not the appellant, and therefore the amount of such contributions made in 1984 is expressly excluded from the income of the appellant by subparagraph 6(1)(a)(i) of the Income Tax Act.

Counsel for the respondent argued that physical receipt of the money in question is not a prerequisite to taxability under subsection 5(1) of the Income Tax Act. He pointed to the scheme of the Pension (Municipal) Act which he asserted calls, inter alia, for contributions by the employee ”. . . from the salary payable to . . .” him. He observed that although it is the employer who, by virtue of subsection 5(1) of the Pension (Municipal) Act, is obliged to deduct ”. . . from the salary payable to each employee .. . .”,

paragraph 7(1)(f) of that Act speaks of ”. . . the amount required to be paid under section 5(1)(b.1) by its employees . . .” (emphasis added). He referred as well to paragraph 17(1)(b) of that Act which, he submitted, identifies the employee as the contributor. It reads in part:

17. (1) An employee who resigns, is dismissed or is otherwise retired from service before reaching his minimum retirement age and is not employed by an employer to whom this Act applies, on application, is entitled to receive a refund in the sum of

(b) all his contributions made under this Act and interest accrued on his contributions at the rate of. . .

[Emphasis added.]

It was common ground that subsection 56(2) of the Income Tax Act does not apply in the circumstances. The question whether the appellant con- curred in the making of the payments to the commissioner was not explored. I do not wish to be taken to agree that the subsection does not apply. I will decide the case, however, on the issues raised by the parties.

In support of her submission that the appellant did not, within the meaning of subsection 5(1) of the Income Tax Act, "receive" the $7,562.11 counsel for the appellant referred to the decision of the Exchequer Court of Canada in M.N.R. v. Claude Rousseau, [1960] C.T.C. 336; 60 D.T.C. 1236. Counsel for the respondent relied on the decision of the Federal Court — Trial Division in Jean-Paul Morin v. The Queen, [1975] C.T.C. 106; 75 D.T.C. 5061, in support of the opposite conclusion.

In the Rousseau case the taxpayer was president, manager and controlling shareholder of a company. He was entitled to receive from his employer salary and rent totalling $22,000. Those amounts were credited to his drawing account, but he received a substantially smaller amount in cash during the year in question. Then, as now, the Income Tax Act taxed salary received. Section 5 of the Act provided:

5. Income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus . . .

At pages 340-42 (1238-39) Fournier, J. said:

As a rule, it is the income paid or received that is taxed. It is true that the Act has enacted exceptions to this general rule, but in the absence of express provisions, I believe that it is the general rule which must be applied in calculating the tax. In the case before us there has been a discussion about the meaning of the word 'touche' mentioned in the section. This word is a synonym of received. Moreover, the English version of the Act uses the word “received”. The words "to receive" and “received” have been examined in numerous cases, among others in that of Capital Trust Corporation Limited et al. v. M.N.R., [1936] Ex. C.R. 163; [1935-37] C.T.C. 258.

An executor of a will was to receive $500 monthly in payment of his services. For more than two years after the testator's death he neglected to get the monthly payment. In 1927 he received the accumulated amount which was owed to him and afterwards he received $500 per month until his death. The Minister arrived at the assessment by using the total amount received in 1927 as his basis . . . On appeal before the Exchequer Court, the preamble of the decision rendered by Angers, J. reads as follows:

Held: That the remuneration of $500 per month to J. M. as provided for in the codicil was in payment of his services as executor and not a gift or bequest, and therefore taxable under the Income Tax Act, R.S.C. 1927, c. 97.

2. That the Income Tax Act assesses income for the year in which it is received,

irrespective of the period during which it is earned or accrues due.

The Supreme Court of Canada affirmed this decision, [1937] S.C.R. 192 [1935-37] C.T.C. 267.

In the case of Gresham Life Assurance Society Limited v. Bishop, [1902] A.C. 287, Lord Lindley, dealing with the meaning of the word “received” said (p. 296):

. . . To constitute a receipt of anything there must be a person to receive and a person from whom he receives, and something received by the former from the latter, and in this case that something must be a sum of money. A mere entry in an account which does not represent such a transaction does not prove any receipt, whatever else it may be worth.

In the case before us, there was a person who was to receive and a person from whom he was to receive. What he was to receive was a sum of money in payment of his salary and the renting of his building. The fact that he was credited with the balance which was owing to him does not constitute a payment within the meaning of the Act, nor a receipt according to the provisions quoted to the Court.

In Morin, the taxpayer's employer deducted at source from the salary payable to the taxpayer the appropriate amount of provincial income tax. The taxpayer contended, unsuccessfully, that the salary he received was his gross salary minus the amount of the provincial tax deduction. At pages 110-11 (D.T.C. 5064-5) Lacroix, J. stated:

In the case at bar the provincial and federal statutes state that income tax is payable on the salary, wages or remuneration that an employee receives during a taxation year. In this case the plaintiff was recorded in his employer's books as being entitled to a salary of $16,268.84. He contends that since the government deducted the amount of tax, he did not receive his full salary, given the fact that the amount of the tax was deducted at source. In other words, the plaintiff puts forward as a proposition of law that in order to receive his salary in the legal sense, he must actually touch or feel it, or have it in his bank account.

We regret to say that this proposition seems to us absolutely inadmissible, because the word ‘receive’ obviously means to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one's hands. In other words, the plaintiff can, and must, say, "what is left of my salary or income, after taxes, is $14,639.85”; it is not correct to say "My income is only $14,639.85”.

In the case at bar it is obvious that by deducting at source the amount of tax fixed by the regulations, his employer was paying the tax that he would have had to pay himself if he had received the full amount of his salary.

Having studied, read and re-read the references given by counsel for the plaintiff, we find that there are no grounds here for applying the ejusdem generis rule, except to say that the expressions “to benefit from, to gain advantage from or to profit from" are included under the generic term "to receive”.

This view is confirmed in a decision of the Privy Council, Hartland v. Diggines, [1926] A.C. 289. Instead of deducting money from his employees' salary, the employer paid his employees' taxes directly. These employees used the same argument as the plaintiff is using here, claiming that they had not "received" the money.

At the end of his reasons for judgment, Viscount Cave, speaking for the Court, said this:

It is true that the appellant did not receive cash in his hands, but he received money's worth year after year. This being so, I cannot resist the conclusion that the payment was in fact a part of his profits and emoluments as an officer of the company for which he has been properly assessed to tax.

This same principle was confirmed recently (March 26,1973) in a very clear and very well-written decision by Roland St-Onge, Q.C., a member of the Tax Review Board, in Lucien Gingras v. Minister of National Revenue. At pages 4 and 5 of his judgment, he states the following:

(Translation)

The expression 'touché' (received) does not necessarily mean that the full amount of the salary must be physically received by the payee or be deposited in full in his bank account.

According to the interpretation of section 5 it is sufficient to say that the amount of the salary was paid by the employer either to the employee himself or to his benefit, or that it was handed over to a third party under a federal or provincial statute.

In light of the decision in Rousseau and having regard to the ordinary meaning of the words of section 5 of the Income Tax Act it is impossible to say that the $7,562.11 was "salary . . . received" by the appellant in 1984. The appellant did not get his hands on the money, was not able to spend it and was not relieved of an obligation to pay an equivalent amount. Anyone who directs his mind to the question of receipt of the $7,562.11 would find himself compelled to say, "The Appellant did not receive it; the commissioner did, and that is exactly what section 5 of the Pension (Municipal) Act required."* [1] The present case is distinguishable from Morin because here it cannot be said that the appellant's employer, in forwarding part of the appellant's salary to the commissioner, was paying an amount which the appellant himself would have been obliged to pay had he received the full amount of his salary. There is no provision in the Pension (Municipal) Act which imposes an obligation on the employee to pay into the fund. As previously noted, subsection 56(2) of the Income Tax Act was not argued and there is no other basis for finding constructive receipt.

Nothing in the provisions of the Pension (Municipal) Act either expressly or by necessary implication constitutes the employer the agent of the employee for purposes of receipt and forwarding of that portion of the salary which must be deducted under subsection 5(1). Subsection 5(1) is quite clear. It authorizes and directs the employer to deduct an amount from salary payable to the employee and to forward that amount to the commissioner. By implication it contemplates that only the balance remaining of the salary must be paid to the employee. The legislature plainly has the power to direct that a payment which would otherwise go to "A" must be made to “B”. Where such a direction has been made, however, logic does not dictate that receipt by "A" through his agent "B" is to be implied. Nothing in the Pension (Municipal) Act suggests that the employer is made the representative of the employee or that his actions in any way bind the employee. Reference to paragraph 7(1)(f) of the Pension (Municipal) Act does not assist the respondent. The payments under subsection 5(1) may well be spoken of as amounts required to be paid by employees because of their source, that is to say, ”. . . salary payable to each employee . . .”. I can find nothing in that Act which supports the suggestion that the employer is constituted the agent or trustee of the employee and the respondent's counsel was unable to point to any case in support of his assertion of agency or trust.

In the result the appeal will be allowed with costs and the assessment referred back to the respondent for reconsideration and reassessment on the basis that the sum of $7,562.11 was not salary received by the appellant during the 1984 taxation year within the meaning of subsection 5(1) of the Income Tax Act. I need only add that since the appellant did not receive the $7,562.11, it cannot be said that he contributed any part of it to or under a registered pension fund or plan within the meaning of paragraph 8(1)(m) of the Income Tax Act.

Appeal allowed.